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Welcome on Board: The Real Potential of Non-Executive Directors

Ciaran Sheehan

Clarendon Executive

The ability to stand back from the day-to-day running of the business and focus on strategic, objective decision-making processes can prove tricky for many company owners but it is a common feature of truly successful businesses, no matter their size. Clarendon Executive’s Ciaran Sheehan examines the considerable impact a good non-exec can make and why many of Northern Ireland’s start-ups and SMEs aren’t realising their potential quickly enough.

It used to be that you’d only find non-executive directors walking the corridors of the larger or public organisations big enough to have a governance agenda.

More recently, however, the important role non-execs can play in companies of all sizes is increasingly recognised, and whilst it is accepted that what is required for a board appointment for a FTSE-listed business might be substantially different from the needs of an NI based start-up or SME, in both instances it is evident that real shareholder value can be delivered from a relatively low investment cost.

The value of non-execs

The work of non-execs rarely makes headlines. Yet within the closed confines of the boardroom, a good non-exec not only exerts considerable influence but can also be a catalyst for the change needed to take a company forward.

A non-exec might play a role to help a growing business get to the next level, to drive performance or work with a start-up CEO to build the strategy and put in place the right management team to deliver it. In some cases the most valuable role played by a non-exec might be to act as a sounding board for a Chief Executive, who has plenty of ideas but not necessarily the confidence, experience or management style to delegate to others to carry them through.

Whatever the role, for small or medium-sized entrepreneurial businesses the function of a non-exec is usually focused on being an agent of growth or transformation with the main advantages being a fresh pair of eyes to scrutinise the business and the ear of an experienced confidant.

Too often we meet great business leaders who may have grown their business from scratch and although often so passionate about the company, they cannot always see the best way forward. The challenges of running a bigger business can often outgrow the founder unless there is a fundamental change in approach.

Non-execs, on the other hand, have an ‘outside looking in’ perspective and can constructively challenge decisions, coach and support the management teams through growth and advise on what has and hasn’t worked based on their experience of working with previous companies to provide good insights and fresh approaches to deal with imminent challenges.

They can also suggest more realism to setting performance standards and measures, using their independence to analyse where the greatest development is needed, bring the right people on board and, if needs be, spearhead mergers or exit strategies.

Room for improvement in NI

It seems, therefore, a no-brainer that every company board should have at least one independent non-exec as standard. But sadly it is not the case.

Far too few of Northern Ireland’s SMEs have a non-exec on their board. Some may have no real insight into what a non-exec can really offer, and others, perhaps cautious of the added scrutiny, have never really given the matter enough commitment to actually press ahead with an appointment.

But given the concentration of family owned and operated businesses in Northern Ireland – where shareholders and executive directors are one in the same - we frequently see the blurring of lines between the separate roles of shareholders and executive directors. In these instances, board meetings are in effect operational team meetings, with the concentration of time on the issues that week or last month.

Strategy discussions (if there are any) are too often limited to one or two afternoons per year and are usually led by the same internal team who also happen to be the shareholders, followed by a get together with a team dinner or night out thrown in at the end. Too often this narrow approach results in an insular perspective, an update of last year’s performance, bereft of real strategic insight and challenge with no step change in performance or approach. Crucial decisions are taken on “gut feel” without the benefit of detailed customer insight, deep research or proper evaluation of opportunities and threats.

It is no surprise therefore that the impacts of a rapidly changing marketplace, new and emerging technologies, new product offerings or service innovations through a focus on R&D are not given the time for proper independent and inspirational thought and challenge.

The key to a good non-exec is their ability to bring clarity to what the business needs and leverage previous experience to inform the strategic decision-making process. Placing strategic growth and development “front and centre” at board meetings should be the priority and is after all what most executives and shareholders go into business to do – to grow a great company rather than be weighed down with the operational burden that the day to day running of a company brings.

Choosing the right NED

Finding the right non-exec can be challenging and the most obvious starting point defining the non-exec role itself – which starts with the needs of the business.

We would recommend first assessing what skills and expertise you already have around the board table, then developing specifications of the skills, personal qualities, sectoral knowledge and experience required for the appointment. You also need someone independent and impartial who is not afraid to “call it as it is” but deliver that message constructively.

Some fundamental questions to ask include: What will this person bring to the business? How can we measure their contribution? Could that value be added more effectively by someone – such as an adviser or interim FD – in a different role?

Another key issue in securing the right level of value and performance from your non-exec is making sure they have the time you need to commit to your company, and no conflicts of interest. In turn any non-exec worth their salt will want to do their own due diligence before taking up a post and the good ones can usually afford to be choosy – they will be thinking of their reputation and directors responsibilities too! To attract the right people you really need to sell the business because the people you want are usually the ones who don’t ‘need’ to do it.

The bottom line

While the lack of an independent influence in the boardroom of many Northern Ireland companies remains a major weakness, there has been gradual improvement in recent years but we have a long way to go as a region if our brightest and best companies all have strong and well-governed boards.

That said, as with any business decision, there is no point jumping on the bandwagon if it delivers no tangible benefits. However, there is evidence that bringing in an outside can inject new life into a business and reassure staff that the right decisions are being made for the future. We regularly see, through the assignments we have managed for fledgling companies through to established SMEs, the positive impact borne out by non-exec appointments – get it right at the top and it can only improve your bottom line.

Disclaimer:

The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.